Trade Tensions Slash Stocks, Silver Lining Perceived


Major US stock-index futures fell sharply to trade at a two-month low amid intensifying trade tensions between China and the United States. The Chinese Yuan plunged to the lowest levels since the financial crisis where the USDCNY pair rose above 7, suggesting that China is retaliating for the recent measures announced by the US President Donald Trump. The recent developments in this matter signaled that China and the United States are not willing to back-off from reaching a full-blown trade war, increasing investors’ fears and driving them towards safer assets. The Dow Jones Industrial Average futures dropped to a low of 25032, the S&P500 futures declined to 2776, and Nasdaq futures plummeted to 7224. During the Asian session, the markets experienced some relief as China was seen intervening to limit the Yuan plunge.


The dollar index which measures the greenback against a basket of major currencies dipped to the 100-day exponential moving average at 97.21 amid growing chances of further interest rate cuts by the Federal Reserve this year. The renewed trade tensions between China and the United States will increase the downside risks to the economic outlook, which could force the Fed to act to protect the current economic expansion. Moreover, the recent economic data continued the show that the US economy is slowing down where the ISM Non-Manufacturing PMI dropped to 53.7 in July missing estimates of 55.5. The CME Fed Watch tool is implying an interest rate cut by the Fed in September meeting. The probability of a 25 basis point rate cut sits at 71.9%, and a 50 basis point rate cut is at 28.1%. The US 10-year yields fell to 1.688%, the lowest since November 2016, the USDJPY tumbled to 105.52, and the EURUSD soared to $1.1248.


The Reserve Bank of Australia concluded its monetary policy meeting and left interest rates unchanged at 1.00%. The bank declared that interest rates would remain at their lowest levels for an extended period of time, while also signaling the readiness to ease the monetary policy further if needed. The AUDUSD tripped to $0.6772 from an overnight high of $0.6795. The pair has been on the back foot since July 19th, weighed by the escalating trade tensions between China and the United States and rising expectations of further monetary policy easing by the RBA throughout the year.


Precious metal prices inched higher as the dollar dropped along with US Treasury yields. The price of a gold ounce climbed to a fresh six-year high of $1474 during the Asian session, the price of a silver ounce rose to $16.55, and palladium recovered partial losses and rallied higher to $1454.


Oil prices tumbled on growing fears that a full-blown trade war between the world's top two economies could deteriorate the global economic outlook and hurt oil demand. The West Texas Intermediate crude futures dropped to a low of $53.75, and Brent futures declined to $59.09, the lowest since early January. However, prices erased partial losses as the stock market felt some relief ahead of the European trading session.

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